Legislation UpdatesRules & Regulations

Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2021

In Regulation 112 of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, the existing clause (b) along with the proviso shall be substituted with the following, namely, –

“(b) where the equity shares of the issuer are frequently traded on a stock exchange for a period of at least three years immediately preceding the reference date, and:

(i)  the issuer has redressed at least ninety-five per cent of the complaints received from the investors till the end of the quarter immediately preceding the month of the reference date, and;

(ii)  the issuer has been in compliance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 for a minimum period of three years immediately preceding the reference date:

Provided that if the issuer has not complied with the provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, relating to the composition of the board of directors, for any quarter during the last three years immediately preceding the date of filing of draft offer document/offer document, but is compliant with such provisions at the time of filing of draft offer document/offer document, and adequate disclosures are made in the offer document about such non-compliances during the three years immediately preceding the date of filing the draft offer document/offer document, it shall be deemed as compliance with the condition:

Provided further that where the promoters propose to subscribe to the specified securities offered to the extent greater than higher of the two options available in clause (a) of sub-regulation (1) of regulation 113, the subscription in excess of such percentage shall be made at a price determined in terms of the provisions of regulation 164 or the issue price, whichever is higher.”

In Regulation 115, the existing proviso after clause (c), shall be omitted.

In Regulation 167, after the existing sub-regulation (4), the following new proviso shall be inserted, namely, –

“Provided that the lock-in provision shall not be applicable to the specified securities to the extent to achieve 10% public shareholding.”

Securities Exchange Board of India

[Notification dt. 08-01-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Security and Exchange Board of India (SEBI): S. K. Mohanty, (Whole Time Member) granted exemptions to the United Provinces Sugar Company Ltd. from the requirements of complying with Minimum Public Shareholding (“MPS”) norms as mandated under rule 19 (2) (b) of provisions of Securities Contracts (Regulations) Rules, 1957 (“SCRR”) and further from the provisions of regulation 27(3)(d) of SEBI(Delisting of Equity Shares) Regulations, 2009 (“Delisting Regulations, 2009”).

The company filed an application before SEBI under Regulation 25A of Delisting Regulations, 2009 seeking certain relaxations for voluntary delisting of the company. The equity shares of the Company were listed on CSE for more than 40 years, of which 94.88% were held by the promoters and the balance shares representing 5.12% were held by 274 public shareholders. There had been no change in the shareholding of the promoters and promoter group of the Company since 1997. The Company asserted that since CSE is non-operational and it is not listed on any nationwide stock exchange, there is no investor interest in the shares of the Company and hence, various methods prescribed by SEBI to achieve MPS compliance were not feasible. It was submitted that since most of the public shareholders were inactive, it was highly unlikely to receive the required 90% consent from such public shareholders for delisting.

The issues before the Board were:

  • Whether a company can be exempted from minimum public shareholding requirement and also
  • Whether the requirement for receiving the consent of the shareholders holding at least 90% of public shareholding of a company, as mandated under Regulation 27(3) (d) of the Delisting Regulations, 2009 can be relaxed?

The Board noted that SEBI Circular CIR/MRD/DSA/18/2014 dated 22-05-2014, inter-alia, exempted companies which were listed exclusively on de-recognized or non-operational stock exchanges from the requirements of MPS prescribed in rules 19(2)(b) and 19A of SCRR and Clause 40A of the Listing Agreement, for the purpose of enabling such companies to opt for voluntary delisting.

For the aforesaid reasons, SEBI, in the interest of investors granted relaxation from the applicability of regulation 27(3) (d) of Delisting Regulations, 2009 to the Company, with further directions that, the Company should ensure compliance with provisions of all other applicable laws including regulation 27(3)(c) of Delisting Regulations, 2009. Additionally, the Applicant should cause to publish the newspaper advertisement in at least one national newspaper in English and in local vernacular newspapers in each State where its public shareholders are residing, as per the addresses available in its records, announcing its delisting proposal within 30 days of this Order, and at least 10 days before the letter is sent to the public shareholders seeking their consent for the delisting proposal. [Delisting of The United Provinces Sugar Company Ltd., In Re., 2020 SCC OnLine SEBI 214, decided on 21-12-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A Coram of Justice A.I.S Cheema (Judicial Member) and Justice Balvinder Singh (Technical Member) set aside the judgment passed by National Company Law Tribunal, Hyderabad Bench (NCLT) and directed the cancellation of entry of the name of appellant in the register of member of respondent 2 showing equity shares purported to have been credited on the basis of conversion of Compulsory Convertible Debentures (CCDs) standing in the name of appellant.

In the present case, appellant company had filed a Company Petition claiming rectification in the register of member of respondent-company, seeking cancellation of entry of the name of petitioner in the Register of Members of respondent-company showing 906599 equity shares purported to have been credited on the basis of conversion of 906599 CCDs standing in the name of the petitioner. The aforementioned Company Petition under Section 59 of the Companies Act, 2013 was then dismissed by NCLT, Hyderabad claiming that the issues raised were complex and could not be dealt with by NCLT. NCLT ruled that in Ammonia Supplies Corpn. (P) Ltd. v. Modern Plastic Containers (P) Ltd., (1998) 7 SCC 105 it was held that in case of a serious dispute as to title, the matter could be relegated to a civil suit. Aggrieved by the said order, the instant appeal was filed.

Learned counsel for appellant Arun Kathpalia, argued that after passing of Companies Act, 2013 the aforementioned case did not hold good in the light of the bar on civil courts. He submitted that in Shashi Prakash Khemka v. NEPC Micon, 2019 SCC OnLine SC 223 the Supreme Court had held that after Companies Act, it is not in dispute that were a dispute to arise today, the civil suit remedy would be completely barred and the power would be vested with the NCLT under Section 59 of the said Act”.

Further, Section 430 of the Companies Act, states that “Civil court will not have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate.”

On the basis of above arguments and in view of the law laid down in NEPC Micon case, it was held that NCLT had jurisdiction to deal with all the cases which dealt with questions regarding rectification and all questions incidental and peripheral to rectification, for the purpose of deciding the legality of the rectification. It was opined that in the present matter, there were really no complex questions involved and even if it were then the same had to be decided by the NCLT and in appeal, this Tribunal was bound to consider whether or not entry made in the Register of Members could be upheld

Hence, the impugned judgment was set aside and cancellation of entry of the name of the appellant in the register of members of respondent 2 showing equity shares purported to have been credited on the basis of conversion of CCDs standing in the name of the appellant was directed.[MAIF Investment India PTE Ltd. v. Ind-Barath Power Infra Ltd., 2019 SCC OnLine NCLAT 203, decided on 28-05-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): The Board comprising of Madhabi Puri Buch (Whole Time Member) passed the direction to the directors of the company, Kaizar Biswas,  Mohammed Jiaur Rahaman, Ajijur Rahaman,  Abu Sama Molla, Ashraful Hoque and Sariful Islam to pay the Equity Share amount of maturities of the schemes/policies/plans and shares/debentures/bonds issued by the Company to the public at large.

SEBI observed that Prayas Projects India Limited had engaged in fund mobilization activity from the public through its offer and issue of Secured Redeemable Non-Convertible Debentures which violated the provisions of the Companies Act, 1956, SEBI Act read with SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

In the instant matter where it was submitted by the director that the Equity shares were issued to the close relatives and family members and the number of members were less than 50, will not constitute the violation of Section 67(3) of the Companies Act. Reference was made to order dated April 28, 2017 of Securities Appellate Tribunal in Neesa Technologies Ltd. v. SEBI, 2017 SCC Online SAT 187 which lays down that “In terms of Section 67(3) of the Companies Act any issue to ‘50 persons or more’ is a public issue and all public issues have to comply with the provisions of Section 56 of Companies Act and ILDS Regulations. Accordingly, in the instant matter, the appellant has violated these provisions and their argument that they have issued the NCDs in multiple tranches and no tranche has exceeded 49 people has no meaning”.

The Tribunal made the Company and the then directors of the company to refund the money through Demand draft or Pay Order through the issuance of Equity Shares including the application money collected from investors during their respective period of directorship, till date, pending allotment of securities, if any, with an interest of 15% per annum, from the eighth day of collection of funds, to the investors till the date of actual payment. The certified report by the Chartered Accountants should be filed with the SEBI in 3 months from the date of order. The restriction is also imposed on the director to access the securities market or related activities for the 4 years from the date of the order.  On non-compliance of the order, directors would be liable to refund in accordance with Section 28-A of the SEBI Act including such other provisions contained in securities laws.[Prayas Projects India Ltd., In re, 2019 SCC OnLine SEBI 39, Order dated 24-04-2019]